Hawkins v Hawkins

[2021] NZHC 1440

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-553

[2021] NZHC 1440

UNDER

the Trustee Act 1956

IN THE MATTER

of the Heads Trust settled by Deed dated 3 June 2010

BETWEEN

ANGELA MAREE HAWKINS and ST MARTINS TRUSTEE

SERVICES LIMITED
Plaintiffs

AND

SAMUEL WILLIAM HAWKINS

First Defendant

continued……2

Hearing:

8 June 2021

Appearances:

G A Cooper and S C Cowan for Plaintiffs

J R Pullar and M P Davis for First Defendant No appearance for Second Defendant
No attendance required for First Third Party Appearance excused for Second Third Party

Judgment:

17 June 2021

Reissued:

21 June 2021

JUDGMENT OF ASSOCIATE JUDGE LESTER

This judgment was delivered by me on 17 June 2021 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar 17 June 2021

NOTE: Pursuant to the slip rule, I re-issue this judgment with amendments to paragraph [5]

HAWKINS v HAWKINS [2021] NZHC 1440 [17 June 2021]

AND

MORHAWK (2017) LIMITED

Second Defendant

AND

ST MARTINS LAW LIMITED

First Third Party

AND

ERROL WILLIAM HAWKINS and DENISE JUNE HAWKINS

Second Third Party

Introduction

[1]                This proceeding concerns the Heads Trust which the plaintiffs say was settled by a Deed dated 3 June 2010.

[2]                The first named plaintiff, Angela Hawkins, is the sister of the first defendant, Samuel Hawkins. The second third parties, Errol and Denise Hawkins, are the parents of Angela and Samuel.

[3]I will use the parties’ first names to avoid confusion.

[4]                Morhawk (2017) Limited (Morhawk) is a company incorporated by Samuel and Errol in March 2017 to purchase a business, that is, the lease of a camping ground in South New Brighton, Christchurch. The shareholders of Morhawk are Errol, Samuel and Samuel’s wife, Jacqueline Hawkins.

[5]                St Martins Trustee Services Limited is the trustee company of a Christchurch law firm, St Martins Law Limited (St Martins Law). Mr Kenneth Marshall (Ken Marshall) practised as Kenneth G Marshall, Barrister and Solicitor, and he is the director of the second-named plaintiff trustee company.

[6]                In early 2017, Mr Marshall sold his law firm practice to a Ms Sarah Clinch. Mr Marshall continued in the practice as a consultant. Ms Clinch started trading as  St Martins Law from 1 April 2017.

[7]                Errol and Denise were bankrupted in the second quarter of 2009. The bankruptcy appears to have been the result of a business failure.

[8]                The evidence is that Denise received of an ACC payment which was apparently considered a personal payment to her and not subject to her bankruptcy. Errol and Denise wished to use this payment to purchase a section in Timaru and wanted to establish a Trust for that purpose, being the Heads Trust (the Trust). The issue in this application is the validity of that Trust.

[9]Samuel seeks summary judgment on the basis that the Trust is a sham.

[10]            Accordingly, it is necessary to give more detail as to the circumstances surrounding the creation (or otherwise) of the Trust.

The evidence regarding the creation of the Trust

[11]            In Samuel’s affidavit in support of this application, he says that the Trust was created to assist Errol and Denise in purchasing a property at 98 Picton Avenue, Christchurch, which belonged to Errol’s parents, however, that would seem to be an error. The Trust Deed is dated 3 June 2010. Following its creation, a section in Timaru was purchased and so it would seem that the purchase of the Timaru section was the prompt for the creation of the Trust.

[12]            Samuel describes being approached by his parents to be a trustee. The Trust was established by St Martins Law.   Under the Trust Deed, Samuel is identified as   a settlor, trustee and a beneficiary. Samuel says on 3 June 2010 his parents “directed” him to attend Mr Marshall’s office to sign the Trust Deed, which he did. At that time Samuel was 20 years old and says he did not have an understanding of trusts or the legal implications that followed from being a trustee. He said he wanted to help his parents and simply did what they told him to do. He says when he signed the Trust Deed he did not read it nor was he aware of its contents. He says Mr Marshall did  not advise him of his duties and obligations as a trustee, did not suggest he take independent advice, or explain what a Trust was.

[13]            Angela’s evidence is that she was also asked to be a trustee of the Trust as Errol and Denise wanted to buy the section in Timaru. Angela says she agreed to be a trustee and she confirms that Mr Marshall drew up the Trust Deed. Angela says “Errol,

Denise, Samuel and I then had  a  meeting  with  Julie  Aitken,  an  employee  of  Ken Marshall, to discuss the details and run through how the Trust would work.”

[14]            Angela’s evidence suggests she had a discussion with Mr Marshall about the Trust as she describes him as being knowledgeable and offering guidance through the process. She says:

Ms Aitken was also very knowledgeable and helpful when we were finalising the trust deed. It was then agreed Samuel, St Martins Trustee Services Limited, and I would be the trustees of the Trust.

[15]            Angela then describes the Trust purchasing the Timaru section, which was fully funded from Denise’s ACC payment. The title for the Timaru section shows it was transferred to Angela, Samuel and St Martins Trustee Services Ltd on 23 June 2010.

[16]            Accordingly, at least for the purposes of this application, I proceed on the basis that the Trust was created for the purchase of the Timaru section.

[17]            An issue that cannot be resolved on the papers is whether Denise settled her ACC payment on the Trust or whether she intended to make an advance of that sum to the Trust. A deed of acknowledgement of debt was prepared for the funds Denise introduced, but it was not signed.

[18]            Denise’s evidence is that, having found the section in Timaru, she talked to Samuel and Angela about setting up the Trust to buy the section using her ACC payment. Denise describes Samuel as actively wanting to be involved in establishing the Trust and to be a trustee. Denise rejects the suggestion that trusteeship was forced upon him. However, she accepts that she contacted St Martins Law and arranged for them to prepare the necessary  documentation  which  she  says  was  prepared  by Ms Aitken. Denise says Ms Aitken prepared a draft Trust Deed which was provided to Samuel and Angela.

[19]            Denise’s evidence is that it was Samuel who arranged a time with Mr Marshall to sign the Trust Deed. Denise accepts that the initial $10 to establish the Trust came from her and Errol and not the named settlors in the Trust Deed.

[20]            In reply to this evidence, Samuel says he has no recollection of meeting     Ms Aitken or being provided with a draft copy of the Trust Deed. Accordingly, there is not an express denial of this evidence. He does, however, deny receiving legal advice from Ms Aitken and again, he does not recall ever meeting her. I note that his signature on the Trust Deed is witnessed by Ms Aitken.

[21]            Mr Marshall’s evidence is that the Trust was established by a staff solicitor, Ms Aitken. He says he was not personally involved in preparing the Trust documents and that he did not meet with Samuel or Angela at the time the Trust was established. This evidence appears inconsistent with Angela saying that she recalls Mr Marshall being knowledgeable about the trust process and as offering his assistance.

[22]Mr Marshall’s evidence is:

As far as I was aware the Heads Trust was another ordinary discretionary family trust which was being set up for the normal reasons of asset protection and transfer of wealth to future generations. The appointment of my trustee company as an independent trustee was common practice.

I would not have agreed to become a trustee of the Trust through my trustee company if the Trust was a sham.

[23]The above is the state of the evidence in relation to the creation of the Trust.

Summary of the applicant’s submission

[24]            While Samuel relies on the conduct of the parties in respect of a subsequent transaction, which I will describe below, counsel for Samuel submits:

The settlors and trustees of the Trust did not have a valid intention to create binding rights and obligations owed by the trustees to the beneficiaries as set out in the Trust deed.

[25]Accordingly, Samuel says the Trust was a sham from the outset.

The subsequent transaction

[26]            I referred earlier to Samuel’s evidence as to the creation of the Trust and his reference to the Trust being created to purchase a property at Picton Ave in

Christchurch, owned by Errol’s parents. In mid-2011 the opportunity to purchase the Picton Ave property from the estate of Errol’s mother arose.

[27]            Angela’s evidence is that Errol and Denise discussed the purchase with her and Samuel. Errol and Denise remained in bankruptcy.

[28]            Denise in her affidavit says the deposit for the Picton Ave property came from her ACC payment and from Errol’s earnings. This will require some further explanation as earlier in her affidavit she said she received a payment of approximately

$45,000 from ACC for an injury and the purchase of the Timaru section required about

$42,000 to settle. Accordingly, after the costs of establishing the Trust and of purchasing the section there would not have been much of the ACC payment left.

[29]            An issue of more significance, and to which I will return, is that Denise says the purchase price of the Picton Ave property was in part met with “an inheritance from Errol’s mother of $100,000” and “a bank loan”. As Errol was bankrupt, the inheritance received during his bankruptcy were funds that should have been passed on to Official Assignee for the benefit of his creditors.

[30]            As to the bank loan, Angela says she was reluctant to agree to get a mortgage as she already had a house and a mortgage to pay and she did not want to commit to any further borrowing. She says, however, that Samuel agreed and he obtained a loan from Westpac. The Trust had to give a mortgage and guarantee to Westpac which Angela agreed to sign. While the home loan documents name Samuel as the borrower, the guarantee is given by the three trustees with a conventional solicitor’s certificate signed by Ms Aitken which certifies she explained to the guarantors the general nature and effect of the guarantee and that the guarantors stated that they understood its nature and effect.

[31]            The Trust’s purchase of the Picton Ave property was settled in June 2011. Errol and Denise took up occupancy of the Picton Ave property and paid money into a bank account opened by Samuel, into which they paid an amount called “rent” on the bank statement. The way this bank account held at Westpac was operated is one of the

factors that Samuel says pointed to Errol and Denise being  the true controllers of  the Trust.

[32]            In  the  third  quarter  of  2016,  Errol,  Samuel  and   Jacqueline,  advised   Mr Marshall they were interested in purchasing the lease of the South New Brighton Motor Camp (the Motor Camp) from the Christchurch City Council. Mr Marshall was instructed to assist with the purchase.

[33]            Mr Marshall wrote to the Christchurch City Council saying he acted for Denise, Samuel and his wife, and he set out the proposed terms of a purchase of the Motor Camp. The correspondence in relation to the purchase was between Errol and Denise and Mr Marshall. It is clear from the correspondence that Errol and Denise saw themselves owning  or  controlling  the  Picton Ave  property.  Their  email  of 26 September 2016 to Mr Marshall said:

Myself and Denise will be selling our current home and then lending up to

$400,000 to the newly formed identity [sic] for the purpose of purchasing the Assets and the upgrades required to get the Camp back to Pre-Earthquake standards.

[34]            The purchase price for the business was approximately $170,000. The Trust agreed to sell the Picton Ave property and Ms Clinch prepared a statement of account in respect of the sale proceeds which records $170,000 being a loan to Morhawk, the second defendant, and with just over $230,000 being described as going to “self – Heads Trust Bank Account”, being the Westpac bank account I referred to earlier. It is the disbursal of these funds that is the subject of the plaintiffs’ claim against Samuel and Morhawk. The claim against Samuel is in breach of trust and against Morhawk for knowing receipt.

[35]            Samuel says the sale of the Picton Ave property and the purchase of the business were transactions controlled by Errol and Denise. Samuel claims to be ignorant of much of what happened in respect of the funds received by Morhawk.

[36]            Angela’s evidence is that she learnt in 2016 of the plan that Errol and Denise, and Samuel and his wife would buy the Motor Camp and live there. She says they were all very excited about it but she had her reservations given Errol and Denise’s

previous business failure and the fact she did not want Errol and Denise “to end up having to start over again.” Angela had some involvement in possible funding arrangements for the purchase. Angela was aware of the sale of the Picton Ave property and she says she expected the sale proceeds would be loaned to Errol, Denise and Samuel to allow them to purchase the Motor Camp. However, while she signed the necessary documents to allow the Picton Ave property to be sold, she said she did not hear anything further about the use of the funds and she assumed that Errol, Denise and Samuel had arranged their own funding. It follows from this evidence that Angela must have believed the net sale proceeds of the Picton Ave  property were to sit at   St Martins Law from 2015, when the Picton Ave property was sold.

[37]            Denise’s evidence was that the purchase of the Motor Camp was Samuel’s idea and she was opposed to the purchase. She describes in general terms a discussion with Samuel that the purchase would be financed from the sale of the Picton Ave property through an advance being made to a new company to purchase the Motor Camp and that Samuel agreed to that.

[38]            Ms Clinch, in her affidavit, says she met with the trustees on three occasions in late April 2017 in order for them to sign the appropriate conveyancing and authority documents, along with an assignment of the EQC claims in relation to the Picton Ave property. She says that during those attendances, she discussed with Angela and Samuel that approximately $170,000 of the sale proceeds of the Picton Ave property would be used to purchase the Motor Camp.  She says: “Both Angela and Sam had   a full understanding of the transaction and were fully aware the funds from the sale were being used to purchase the lease.”

[39]            Mr Marshall, in his affidavit, says his involvement in relation to the purchase of the Motor Camp business was not on behalf of the Trust, but in relation to the incorporation of Morhawk and its purchase of the Motor Camp. He deposes his dealings with Errol and Denise were in relation to these steps.

[40]            Mr Marshall says the only transaction undertaken by the Trust at this time was the sale of the Picton Ave property and that transaction was handled by Ms Clinch. Mr Marshall deposes his instructions from Errol and Denise were not in relation to the

Trust matters but in relation to the Motor Camp.    He says the only involvement the Trust had with the purchase of the Motor Camp was to make funds available.

Principles applicable to defendants’ summary judgment application

[41]            The principles against which this application must be considered were not in dispute.

[42]            Summary judgment may be given in favour of a defendant if the Court is satisfied that none of the causes of action pleaded can succeed. The Court must be left without any real doubt or certainty. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents but:1

… it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable …

If questions of law arise then there is no reason why the Court should not resolve those in a summary judgment application.

The law in relation to sham trusts

[43]            While the following is a reasonably lengthy passage, it is a helpful summary of  the  relevant  principles  extracted  from  the  leading  case   of   Official   Assignee v Wilson,2   by   Wylie  J   in    his    decision    Rosebud    Corporate Trustee Ltd v Bublitz:3

[92] In considering what the settlor’s (or in the case of a bilateral trust, the settlor’s  and  the  trustee’s)  intention  was,  the  court  can  look  behind   the objective appearance of the trust, as to ascertain the true nature of the transaction.4 Control by another person does not of itself provide justification for invalidating a trust. However, evidence of control can be relevant to the question of whether the trust is a sham. It can evidence a lack of true intention to form the trust at the outset. A finding of effective control by another may help establish that a trust is a sham if it indicates that it was not intended that the trust took effect according to its terms, and evidence of effective control

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

2      Official Assignee v Wilson [2007] NZCA 112, [2008] 3 NZLR 45.

3      Rosebud Corporate Trustee Ltd v Bublitz [2014] NZHC 2018.

4      Official Assignee v Wilson, above n 2, at [50]; and see, Re Securitibank Ltd (No 2) [1978] 2 NZLR 136 (CA) at 167–168.

of the trust post settlement can be used to infer the requisite intention.5 Contemporary evidence of the actions and words of the relevant parties showing that the trust was not intended to be genuine can be taken into account, as can subsequent conduct where that conduct enables the court to ascertain the objective intention that the trust was to be a sham at the time it was set up.6 Evidence that a sham was intended from the outset can include looking at why the trust was set up in the first place,7 the degree of de facto or actual control over the trust,8 whether trust property has been used for personal benefit,9 and whether there has been poor administration of the trust.10

[44]            Mr Pullar, counsel for Samuel, accepted that the Trust in issue is a bilateral trust meaning there must be a common intention to create a sham between the settlor and trustees. The issue then is how Samuel can establish to the high standard required in this context that the common intention between the settlor and the trustees was that the Trust would not be genuine?

[45]            Mr Pullar did not suggest Mr Marshall, through his trustee company, had been fraudulent. However, Mr Pullar submitted Mr Marshall was so reckless as to or ignorant of the true position that such was tantamount to an intention that the Trust not be genuine.11

[46]            As I have said, a Trust Deed was drafted and signed by the three trustees and the named settlors, Angela and Samuel, albeit the settlors did not contribute the initial

$10. With this in mind, I note that the Court in Official Assignee emphasised the courts will not wantonly interfere in ostensibly valid commercial transactions and stated:12

In the context of trusts, where a transaction objectively appears to be a trust, it will be held out to be a trust, even if it is unclear whether the settlor actually intended for there to be a trust ... A court will only look behind a transaction’s ostensible validity if there is good reason to do so, and “good reason” is a high threshold, since a premium is placed on commercial certainty.

5      Official Assignee v Wilson, above n 2, at [71].

6      Official Assignee v Wilson, above n 2 at [57] and [110].

7 At [123].

8 At [126].

9 At [90].

10 At [92].

11     Official Assignee v Wilson, above n 2, at [38].

12     Official Assignee v Wilson, above n 2, footnote omitted.

[47]            I am satisfied the applicant has not met the high threshold for showing the only conclusion that could be reached, after a review of the facts and circumstances surrounding the initial creation of the Trust in June 2010, was that the Trust was intended to be a sham or that Mr Marshall was so reckless or ignorant as to the true nature of the transaction that his conduct was tantamount to the necessary intention.

A conventional family trust?

[48]            The Trust was created at a time when Errol and Denise were bankrupt. Denise had received an ACC payment of some $45,000 which she was advised were her personal funds and not part of her bankrupt estate. Given the position she and Errol were in, it is entirely understandable that they would want to create a family trust. They located a modestly priced section in Timaru which could be purchased with the ACC payment. It is not surprising that they would wish to protect those funds. However, the fact that Denise says she advanced rather than gifted those funds to the Trust is arguably inconsistent with the idea of protecting the funds as the debt back from the trustees would remain an asset in Denise’s hands.

[49]            In any event, those are the circumstances presented to Mr Marshall. The circumstances are not such that I can dismiss Mr Marshall’s evidence that the Heads Trust was another ordinary discretionary family trust being established for normal reasons. There is something in the point made on behalf of the plaintiffs that the fact the Trust Deed excludes named individuals in defining the classes of beneficiaries is some indication the Trust was intended to be genuine. If it was intended to be a sham why was it necessary to exclude named individuals.

[50]            I have not overlooked Mr Pullar’s submission that deficiencies in Trust administration over subsequent years is conduct which, in terms of the passage from Rosebud set out at [43], would enable the Court to ascertain the objective intention that the Trust was to be a sham at the time it was set up.

[51]            There are certainly arguable deficiencies in the management of the Trust. For example, the payment of the $230,000 to the Westpac account was to a bank account over which Mr Marshall’s trust company, St Martins Trustee Services Ltd, had no control. Effectively, this represented St Martins Trustee Services Ltd abdicating

control of those funds as the money could be disbursed from the account without reference to Mr Marshall, who knew he was not a signatory of that account.

[52]            There is also the fact that Errol and Denise referred to the Trust property at Picton Ave as being their own. However, it is not uncommon for people to refer loosely to Trust property. That Mr Marshall did not in writing correct Errol and Denise in a way is not surprising. Mr Marshall would have known the true position in respect of ownership of the property and he had no reason for concern in that regard given his trust company was on the title so that nothing could happen to the property without his say so. Ultimately, all the appropriate documentation for the sale of Picton Ave by the trustees was completed.

[53] As to the degree of de facto or actual control Errol and Denise held over the Trust, such cannot be resolved on the papers. There is a dispute as to who initiated the purchase of the Motor Camp, who suggested the funding come from the Trust, and what Angela and Samuel knew in that regard. There is certainly evidence that Errol and Denise had control of, or at least access to, the Trust bank account and the circumstances surrounding that will require further investigation. It certainly appears that the Trust bank account was used by Errol and Denise and, to some extent, Samuel, as if it were their personal account. However, such is not conclusive. I cannot discount Mr Clinch’s evidence set out at [38] above.

[54]            Accordingly, a number of the indicators of the existence of a sham as set out in Rosebud may arguably be present but establishing the existence of a sham is not simply a matter of showing this is the case. The inquiry is an intensively factual one and therefore the context is important.

[55]            The circumstances in which this Trust was created and the disputed evidence about the trustees’ knowledge of and participation in the Motor Camp acquisition mean I am satisfied that the applicant has not demonstrated the only reasonable conclusion available in this case is that the Trust was a sham. It follows the application for summary judgment is dismissed.

Standing

[56]            Mr Cooper, counsel for the plaintiffs, submitted the application could be dismissed on a more straightforward basis. He referred to Official Assignee v Wilson, where the Official Assignee, with a view to benefitting the creditors of the bankrupt settlor, Mr Reynolds, argued that a trust established by Mr Reynolds was a sham. The Court of Appeal said:13

[23] It is unsustainable to assert that Mr Reynolds could come before the Court and ask to benefit as a result of his own slackness, informality or perhaps even illegality. The [Official Assignee] does not, in these circumstances, have a different stance from that of Mr Reynolds. No matter how condemnatory the Court were to be in its assessment of the acts and omissions of the relevant players, it could never reach the point where there could be integrity or justification in allowing Mr Reynolds to seek relief which is effectively for his own benefit. The fact that the benefit might be able to be transferred to his creditors does not alter the analysis.

[57]The Court then concluded that finding effectively disposed of the appeal.14

[58]            Mr Cooper submitted the same held true in this case. If the Trust was a sham then Samuel was either complicit in the sham or was guilty of slackness or informality in that regard. Mr Cooper’s submission was that Samuel was a party to the creation of the sham, his argument was self-defeating, that is, the more Samuel was able to point to the transaction being a sham, the more it was unsustainable for him to seek to benefit from that sham. It does not matter that Samuel brings this application essentially as a shield to the application as “no man shall set up his own iniquity as   a defence, any more than as a cause of action”.15

[59]            While I do not decide the case on that basis, it is a factor that reinforces my view that the plaintiffs’ claim is not suitable for summary determination.

Affidavit not read

[60]            This application was heard on Tuesday 8 June 2021. On Friday 4 June 2021, a further affidavit from Ms Clinch was filed and served. This affidavit sought to take

13     Above n 2.

14 At [25].

15     Montefiori v Montefiori (1762) 1 Black W 363, 96 ER 203 referred to in Stenning v Radio and Domestic Finance Ltd [1961] NZLR 7 (SC) at 13.

issue with Mr Marshall’s evidence. The affidavit was filed by counsel for St Martins Law who did not take part in the application. If St Martins Law wished to support Samuel’s application, then the material in the affidavit of 4 June 2021 should have been filed much earlier than 4 June, given the application was filed some time ago.

[61]            Samuel sought to rely on the affidavit in support of his application for summary judgment. I directed at the start of the hearing that Ms Clinch’s affidavit not be read for the application, as it contained material that Mr Marshall had not had the opportunity to comment on. Mr Marshall had filed his affidavit in reply to the original affidavit of Ms Clinch. The time for Ms Clinch to produce her material attached to her affidavit of 4 June 2021 was when she filed her original affidavit. All parties should have access to the files relating to the transactions – I have already ruled that those documents are not privileged given the transactions were not intended to be kept confidential from any of the other parties.

Costs

[62]            Counsel were not heard on costs. That said, there would appear to be no reason why costs should not follow the event on a 2B basis. If any counsel wish to file submissions on costs, they are to do so within 10 working days by way of memorandum not more than five pages in length. If no memoranda are filed within that time limit then the costs order shall be that the respondents are awarded costs on a 2B basis plus disbursements as fixed by the Registrar.

Role of Official Assignee

[63]            Errol and Denise were not represented at the hearing of Samuel’s application as their counsel,  Mr Shamy,  was  given leave not to appear.   Mr Shamy is to file     a memorandum as to any points he considers I should have regard to and whether to provide a copy of this judgment to the Official Assignee. This is because it appears Errol used funds that should have gone to the Official Assignee (the inheritance) for the purchase of the Picton Ave property.

Associate Judge Lester